Mary Love says she “got caught up” ten years ago when she needed help paying the rent on her apartment.
Love borrowed $ 200 in cash from an Advance America payday loan store across the street where she worked at the UPS logistics call center in Louisville. In return, she gave the store a personal check for $ 215, covering the loan principal plus a $ 15 fee. She was due to come back in two weeks with $ 215 in cash or Advance America would attempt to cash her check.
“But two weeks later I still had other things to catch up with, so I took out another loan, this time for $ 400,” said Love, now 71, living in County. Oldham. “In two weeks, I had to pay back $ 430. And it continued. I never caught up. For two years, I never caught up enough time to pay them off enough so that I didn’t have to take out another loan. I probably paid them $ 1,400 in interest over those two years to continue borrowing that $ 400. “
“Once you’re stuck in this cycle it’s very, very hard to come out of it,” said Love, who eventually turned to credit counseling to restructure her debts and make payment plans with her. creditors, including Advance America.
Jamie Fulmer, senior vice president at Advance America, based in Spartanburg, South Carolina, said his company provides a necessary financial service and obeys the laws of each state in which its stores operate.
“We take this very seriously,” Fulmer said.
Payday loan stores emerged in the 1990s as a quick source of money for people who thought they couldn’t turn to banks or credit unions. Some clients were poor and had bad credit histories. Others simply wanted a smaller loan than most traditional lenders offered. But quick money has come at a high price. Annual interest rates on payday loans can exceed 400% in Kentucky, well above anything a bank or even a credit card company would charge its borrowers.
Many people who walk into a payday loan store are living on the brink of financial disaster, said Anne Marie Regan, senior counsel at the Kentucky Equal Justice Center in Louisville.
“These are people who have no money to fall back on,” Regan said. “Their car needs repairs or they have to pay their rent, and they just don’t have the money. But the reality is, if they don’t have the money today, they probably won’t have the money, plus extra to pay the fees on top of the principal, two weeks from now. It is a very bad product. It’s just.”
Charles Vice, who is responsible for regulating payday lenders as Kentucky’s commissioner of financial institutions, said “there is a demand” for the stores.
“There are customers who want this type of service and are willing to pay the price for it. It is a credit market that many companies have left. A lot of banks and credit unions will not lend in this type of space, which is below a certain amount, ”Vice said. “So it’s a type of credit that serves a certain market.”
Would he ever have taken out a payday loan?
” Me personally ? No, ”he said.
There were 2.1 million payday loan transactions in Kentucky last year, for a total of $ 717 million borrowed and $ 117 million in fees, according to a nationwide database. ‘State.
Once they get involved with payday lenders, borrowers like Love can struggle to break free. The average borrower in 2015 took out nearly 11 loans for a total cash advance of $ 3,606 and $ 591 in fees, according to the database. This average borrower had a loan outstanding for more than six months last year.
“I was a bankruptcy lawyer before I was state treasurer, and I got to see with my own eyes how payday loans, if they’re made – well, it’s often done in a way that is detrimental to people, ”said Kentucky state treasurer Allison Ball. “I just saw a vicious circle of people getting involved and not being able to get out of it, hidden fees, undisclosed fees. I saw interest where it wasn’t really disclosed and it was incredibly heavy.
Ball said she was preparing a list of initiatives to protect borrowers. But such efforts typically fail in the General Assembly, which annually ignores bills that would cap the interest rate on payday loans at 36 percent. This is the interest cap imposed by the US Department of Defense on anyone who lends money to an active-duty military family.
The last restrictions on Kentucky’s payday lending industry in the late 2000s limited borrowers to $ 500 or two loans at any given time. A statewide payday loan database has been created to track borrowers and their outstanding loans. In theory, no one can get a new payday loan until the database determines that they are eligible. In fact, payday lenders are frequently cited for entering inaccurate information about borrowers and their loan status, allowing more debt to be issued than the law allows.
In Washington, the Consumer Financial Protection Bureau last month proposed new federal rules that would force “drastic changes” in the way payday lenders work, as described by Moody’s Investors Service. Among these changes, lenders should give more consideration to a borrower’s ability to repay before approving a loan. If passed, the new rules “would have a huge impact on the profitability of payday lenders,” Moody’s said.
Such changes would make small loans less attractive to lenders, said Vice, Kentucky’s financial regulator.
“You’re going to have – since this rule is in place for small loans – you’re just going to see the amount someone is willing to lend go up,” Vice said. “Simply because if I have to do a capacity to pay calculation on you, there is some overhead associated with that. So to cover that up, I have to either have one of two things. I have to have more interest rate for the risk I’m taking. Or I must have a higher loan volume.
Love, who retired as a Presbyterian minister in Louisville before working for UPS, said she was initially ashamed to talk about her payday loan debts. Then, as she studied how the industry worked, she realized that thousands of other Kentuckians shared her predicament, she said. Potential borrowers should be warned, she said.
“You don’t have to be broke to be trapped,” Love said. “I think everyone assumes it’s just deadbeats getting caught. Well, maybe I was a deadbeat, but I was a deadbeat working and making $ 35,000 a year when I got caught. And then I just didn’t see a way out for a long time. “